June 3, 2010

Why Insurance For Financed Vehicles Costs Less

One of the first decisions we all make before getting a new car is whether to buy or lease. Unless we have thousands of dollars hidden in our mattresses, one downside to buying is that we are going to have to make the purchase through auto finance. As for leasing, the mileage restrictions and end-of-lease costs are often negative factors in our thinking process. Before making the final decision, however, try getting an auto insurance quote for the car, both as a financed purchase and as a lease. You may be quite surprised by the difference.

In general, a car purchased through auto finance, as opposed to being leased, will cost you less to insure. This is because when you lease a car, the lease company remains the actual owner, and in order to limit its liability if the car is ever involved in an accident, the company will require a fairly high level of insurance coverage. For instance, most leasing companies require $100,000/$300,000 liability coverage ($100,000 per person, $300,000 per accident), $50,000 in coverage for property damage, and both comprehensive and collision coverage with a deductible of no more than $500. These requirements will limit the flexibility on premium costs any insurance company will have when you request an auto insurance quote.

On the other hand, if you purchase the car through auto finance, you are now the owner of the car, and you can set the requirements yourself for the levels of insurance. One of the easiest ways to reduce your insurance premium is by accepting higher deductibles. When you request an auto insurance quote, see what the difference in premium would be between a $500 deductible and, for example, a $750 or $1,000 deductible. You might be surprised by the answer. If you are financing a used car, you may also consider foregoing collision coverage, a move that will significantly lower your insurance costs. Lowering the liability thresholds may also reduce your premium costs, but think carefully about such a move. If you were ever involved in a serious accident and found to be responsible, you could be opening yourself up to huge out-of-pocket expenses.

As mentioned above, the real difference here is ownership of the car. The leasing company, as owner of the car, will not allow you much flexibility when it comes to the levels of insurance you will have to carry on a leased vehicle. When you purchase a car through auto finance, you are in the driver's seat, so to speak, when it comes to determining what levels of insurance you can afford and will be comfortable with on the car.